Hong Kong May Address Land Supply

Measures to cool Hong Kong’s property market will be one of the main features of Financial Secretary John Tsang’s budget speech Wednesday, with another increase in land supply over the next fiscal year likely.

Despite various government measures, Hong Kong’s real estate prices have remained at or above the peak levels last seen before the property market bubble in 1997. Average home prices rose around 24% in 2010 following a 30% jump in the previous year, driven by strong end-user demand amid low interest rates.

The city’s underlying inflation has continued to edge higher, hitting a near two-year high in December, outpacing the rise in average salaries and putting the government under pressure from lawmakers and social groups to tackle issues such as the affordability of housing and the effect of rising consumer prices on low-income groups.

A person familiar with the situation said Mr. Tsang will announce plans to increase housing supply by boosting the number of sites sold in government-initiated land auctions to more than 10 in the coming fiscal year, which begins April 1. The government sold 10 sites in land auctions last year. Four of the 10 were initiated by the government, with the remainder initiated by developers.

In November, the Hong Kong government took its toughest step yet to cool the property market by imposing an additional stamp duty, or transaction levy, of up to 15% on properties that are resold within two years and requiring higher down-payments for high-end home purchases, moves that were supported by the International Monetary Fund.

However, transaction volumes and prices have rebounded sharply since January after a brief lull in the market, raising concerns over the government’s capability of containing the property boom.

Economists said they expect an increase in land supply to have only a moderate effect in the near term, due to the time needed to build to build apartments once land is sold.

“We don’t expect any fundamental changes in the government’s overall housing and land policy,” said Kevin Lai, a senior economist at Daiwa Capital Markets. He said he expects a 10% rise in Hong Kong property prices this year.

Expectations of a huge budget surplus for the current fiscal year will also add pressure on Mr. Tsang to implement one-off inflation-relief measures to support the city’s low-income groups, which are most vulnerable to higher consumer prices, economists said.

Another person familiar with the situation said the government will likely report a budget surplus of between 60 billion and 80 billion Hong Kong dollars (US$7.7 billion – 10 billion) for the current fiscal year, compared with its forecast of a HK$25.2 billion deficit and more than double the HK$25.9 billion surplus in the last fiscal year.

Buoyed by robust domestic demand and exports growth, Hong Kong’s economy likely grew between 6.6% and 7.0% in 2010, exceeding the government’s forecast of a 6.5% expansion, the person said, marking the highest annual growth rate in the city since gross domestic product expanded 7.0% in 2006. Mr. Tsang will announce fourth-quarter and full-year GDP figures on Wednesday.

Standard Chartered economist Kelvin Lau said he expects the government to announce some relief measures it has used in the past, such as income-tax rebates and temporary waivers on property taxes and public housing rentals. Other possible measures include subsidies on utilities and transport costs, he said.

Daiwa’s Mr. Lai said he expects the government to launch a new round of one-off sweeteners totaling around HK$30 billion. Still, he said the government’s fiscal policy continues to be “extremely conservative.”

Mr. Lai added: “Despite the inflation challenge, we don’t expect the government to make full use of its ammunition by cutting taxes or raising spending more permanently.”

HK rental prices are among the world's most expensive. If ex-pats are having to move because of increasing rental prices, i can understand the plight of a commoner... The market has to correct at some stage as it's ridiculous to think it would increase further from levels seen in 2009 and 2010. I really hope the HK government comes up with some concrete and effective measures to control or HK will lose its appeal for many foreign professionals...

4:01 am February 22, 2011

F Cheung wrote:

If lands are auctioned off to the major developers again and again for luxury apartments projects, housing price in Hong Kong would continue be the most unaffordable in the world. There is more than 120,000 people on the public housing waitlist, why public housing construction is never on the top of the agenda?

3:59 am February 22, 2011

F Cheung wrote:

If the lands are auctioned off to the major developers again and again for luxury apartments projects, housing price in Hong Kong will continue be the most unaffordable in the world. There is over 120,000 on the public housing wait list, why public housing construction is not on the top of the agenda?